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What the Farmers Insurance Suit Tell Us About Climate Change

A lawsuit filed in Illinois by Farmers Insurance claims that the Metropolitan Water Reclamation District (MWRD), the City of Chicago, and 101 other municipalities and county offices has gotten attention recently from the Chicago Tribune, the Washington Post, Marketplace , and E&E News. Farmers Insurance claims that MWRD and the municipalities are liable for damages resulting from a storm in April 2013 because they knew that their stormwater infrastructure was insufficient to deal with extreme precipitation brought on in part by climate change.

Setting aside the merits of the case or whether MWRD and the cities named in the complaint are at fault or not, rest assured that you’ll be seeing more cases like this one. Litigation is a symptom of what happens when the response to a recognized problem is insufficient. The system breaks down when remedies are not evident and parties take their claims to court to find relief. That’s certainly the situation when looking at preparedness for climate impacts.

Federal, state, and local governments clearly have a responsibility to identify the future impacts of climate change, the risks posed by those impacts, and to plan and prepare accordingly. This is starting to happen at all levels of government, but not at the pace we need if we are to keep ahead of the curve.

We are in the middle of the biggest risk management exercise of all time. And so far, we’re not moving fast enough to deal with risks of flooding, drought, sea level rise, etc. that will continue to grow in scale, frequency, and complexity. Our systems for managing stormwater, wastewater, and drinking water are not designed with the future impacts of climate change in mind. Neither are our energy or transportation systems.

There is a real role for the industry to advocate for solutions and use their clout to help advance them. But the insurance industry has not been particularly vocal about the need to deal with climate change, with the exception of the big re-insurance companies like Munich Re, Swiss Re, and Zurich Re (the companies that sell insurance to insurance companies and cover their losses). Nor has the industry in general factored in the risks climate change poses to its business.

According to a climate risk disclosure survey of 184 insurance companies compiled by Ceres, very few primary insurers (the companies you and I deal with for insurance) are factoring climate change risks into their operations. “Out of 184 companies, only eleven provided disclosure of sufficient quality and detail to tally more than half the eligible points in two of the four domains,” covered by the survey. It’s worth noting that Farmers was among those eleven, as were some of the biggest re-insurance companies on the planet including Munich Re, Swiss Re, and Zurich.

We all need to get ready for what the future is already serving up. Extreme precipitation events that cause flooding, sea level rise, the increasing risk of drought and water scarcity. We are going to be dealing with a lot of new challenges from here on out and we are going to be dealing with them far more frequently. Those that are smart enough to look ahead and start preparing for our climate future are going to find it a lot easier to deal with those challenges.

For the insurance industry, it is time to get cracking. Beyond trying to find others to pay the price for inaction, they should be more engaged in the solutions discussion. That means looking at the properties they insure, the investments they make to hedge against losses, and even their active support for actions to on preparing for climate impacts and to slow climate change, such as the Obama administration’s upcoming carbon pollution standards for power plants. It's not just the right thing to do for their bottom line; it’s the right thing to do.